Help to Buy- Benefitting Buyers or Builders?
Redrow Homes have announced that they are looking forward to working with the government to consider the future of the Help-to-Buy scheme. Since former chancellor George Osbourne committed to helping buyers get on the housing ladder with a 5% deposit, Redrow has reported record profits every year.
Typical of the sector, around 40% of Redrow’s private sales are part of the Help to Buy scheme, and the company profits are expected to rise to £430million by 2020, ‘subject to market conditions remaining unchanged.’
The question being asked is why the government would continue to fund a scheme after 2021, having already spent £4.6b on it already? While the scheme has allowed people to access the housing market when they otherwise couldn’t, it has been argued that the biggest winners of the scheme are housebuilding companies.
When the scheme was launched in 2013, one of the main justifications was the limp mortgage market which has significantly improved. Banks are well capitalised, high loan to value mortgages are available and the current concern is now about too much lending, rather than too little. The other justification was that more demand for housing would boost the supply. This has been successful, albeit modestly, but even if the scheme was revoked, housebuilders are still likely to continue building.
Before the renewal of Help-to-Buy is considered, it is worth considering the warning of Lord King, former governor of the Bank of England in 2004; ‘This scheme is a little too close for comfort to a general scheme to guarantee mortgages. We had a very healthy mortgage market with competing lenders attracting borrowers before the crisis, and we need to get back to that healthy mortgage market… we mustn’t let this scheme become a permanent scheme.’
Even if the scheme is continued after 2021, it has been suggested that it is too generous and too many houses qualify for Help-to-Buy. The ceiling is currently £600,000 and 20% of the value of the mortgage. Should the scheme continue, it has been suggested that these figures are reduced to keep the support for buyers in place, without the scheme becoming an integral part of the housing market.